If you’re thinking of starting a business, you’re in good company. The U.S. Small Business Administration (SBA) reports that 99.7 percent of U.S. companies are categorized as small businesses — those with fewer than 500 employees. If you’ve always dreamed of quitting your day job and gaining independence by becoming your own boss, here’s a step-by-step guide with everything you need to know to make your daydream a reality.
Research Your Idea
If you already have an idea for a small business, you’re ahead of the game. An idea is just the seed, however; the first step in starting your business is determining whether there’s a market for your idea. The SBA emphasizes the importance of understanding the market for your product or service before starting a business. Some questions you must answer during the market research phase of business development include:
Who is the intended audience for your product or service?
About how large is this intended audience? What percentage of the audience is already served by another business?
What are the demographics of your intended audience, including income level and employment rate? Where do your customers live?
Does your product or service provide customer benefit or solve a problem?
Do other companies already offer similar products or services? How much do they charge?
What competitive advantage can your business provide over similar companies?
Maybe you already know the answers to some of these questions, but you’ll likely need to do some fact-finding using market research methods such as surveys, focus groups and interviews. You’ll also need to conduct a thorough competitive analysis of similar businesses in the market. Create a simple chart with the name of each competitor and the following characteristics:
The share of the market they currently command
Their strengths and weaknesses
Their location in proximity to yours
Where and how they currently market their services
Their reputation in the market
This will give you a clear picture of opportunities for you to enter the market and challenges you might face as you attempt to do so. The SBA has a free online tool called SizeUp that can assist with the competitive analysis process.
Write a Business Plan
The research phase is where you flesh out your idea — now it’s time to get it down on paper. If you’re not currently planning to apply for financing with a traditional bank, your initial business plan can be relatively simple. According to templates provided by The Balance, a basic business plan should include the following sections:
Vision: In this section, describe your business concept and plans for the future. Detail the type of business you’re building, how you want it to grow over the next year and where you plan to be in five years.
Mission: Here, detail the products and services you plan to provide, identify your target market and describe your unique selling proposition — what you will offer that your competitors don’t. Note whether you’ll be a home-based business that sells primarily online and/or if you plan to have a brick and mortar location.
Pricing Strategy: How much will you charge for your products or services? You’ll need to set a competitive rate that will attract customers while allowing you to earn a profit. This section should also project your business’s earnings and expenses.
Marketing and Advertising: Describe the channels you plan to use to let people know about your new business. Consider both digital and traditional marketing strategies, as well as client referrals.
Objectives: How will you measure success? This section should list several measurable, time-specific goals, such as a revenue target for the first year or a benchmark for the number of customers you want to reach in the first six months. Include potential challenges you’ll face in reaching these goals and strategies to overcome these obstacles.
Action Plans: Detail the steps you’ll take to achieve your objectives.
Create a Budget
Whether you plan to minimize expenses with a lean startup approach or you’ve already saved the capital to launch your business, estimate the costs associated with starting and running it. While the actual costs vary dramatically by industry, you should account for the following possible categories:
- State and local business licenses and permits
- Legal fees, especially if you plan to incorporate
- Business insurance
- Brand and website development
- Market research
- Rental lease
- Rent and utilities
- Marketing and advertising
- Production and supplies
- Travel expenses
- Living expenses
- Employee salaries, if you plan to create jobs
Use these numbers to extrapolate your estimated expenses for the first six months. Entrepreneur recommends keeping costs as low as possible with the goal of turning a profit within the first 60 to 90 days in business. However, the magazine also notes that you should add a 20 percent “burn rate” to your budget. This will be spent on unexpected incidentals and will help you plan your realistic cash flow.
Set up a system to manage your finances that keeps business income and expenses completely separate from personal income and expenses. This will make your life much easier come tax time.
Decide on a Business Structure
Incorporating your small business protects your personal assets from business liability. This means the business is legally considered a separate entity, so your house, car and other property cannot be seized to pay business debts or legal judgments. Incorporating your business also has tax advantages. Whether it’s best for you to establish a sole proprietorship, a partnership, a limited liability company (LLC) or a corporation depends on the type of business, the number of employees and other factors.
A business attorney can advise you on the best strategy for your specific venture. For most sole proprietors, keeping the business structure as simple as possible will keep costs low as you’re starting out and give you a chance to determine the ideal setup as you grow. Entrepreneur recommends new businesses wait three to six months before forming a legal entity. Keep in mind that even when you choose a business structure, however, you can always reorganize to become a different entity down the road.
The IRS requires some small businesses to register for an Employer Identification Number (EIN), which is used for payroll and certain types of taxation.
Name Your Business
Naming your new business can be one of the most fun parts of becoming an entrepreneur and also one of the most challenging. Think about what your business stands for and what you hope to accomplish. Think about your mission statement and the message you want to portray. Consider whether you want to choose something that is easy to pronounce and remember or a unique name that sets your business apart from the crowd. Have a brainstorming session where you write down every name that comes to mind, then test your favorites with trusted mentors, friends and colleagues to gauge their reactions and get feedback about the main contenders. When you have a finalist, take a few days to let it settle before making your ultimate choice.
Once you’ve brainstormed the best possible name for your new business, use your state’s business name search function to make sure it isn’t already in use. Even if the name you have in mind is available, make sure you can also reserve the domain name. When you settle on a name, register it through the Secretary of State and any relevant local entities.
According to Inc. magazine, many new entrepreneurs get stuck in the naming and branding stage and don’t move forward because they are waiting to think of the perfect name. Avoid this pitfall by choosing a memorable, evocative name, even if you don’t necessarily fall in love with it right away. Doing so will allow you to get the ball rolling on your dream.
Find a Location
Unless you’re starting an online or home-based business, you’ll need to find the ideal physical location for your enterprise. This is where you’ll register your business, obtain the required permits and licenses and pay local and state taxes. These items can be much more costly in some municipalities than in others, so do your research to make sure you choose a city that’s on the more affordable side. On the flip side, some state and local governments offer tax incentives and credits for new businesses, and federal incentives are available for new ventures in certain zones that are historically underutilized.
Create an Online Presence
After registering your domain name, set up a website for your business. If you’ve never built a site before, try using one of the many free tools to create a business website that are as intuitive as creating a Word document, with simple drag and drop functionality. If you plan to sell products online, sites like Shopify charge a reasonable monthly fee for a virtual storefront with online shopping cart functionality. This is also the time to set up social media accounts and promote them on your new site. Don’t forget to create an official email address for business use.
Start Promoting Your New Business
If you want to have a successful small business, get used to telling everyone you encounter about your new venture. Join your local chamber of commerce, and explore the resources they offer to fledgling small businesses in your community. They might have a platform where you can present information about your business or meetings where you can network with other small business owners. If you’re selling a product, set up a booth at a local farmers market and provide free samples. Use this as an opportunity to gather market research and test the public response to your offerings. Although business cards might seem outdated, they are actually a useful networking tool that provides something tangible to give potential customers, increasing the chance they’ll remember you when they need your product or service.
Announce your new business on social media, and ask friends, acquaintances and potential customers to follow your business pages. Drive traffic to your website by promoting sales or sharing content related to your industry. Facebook and Google both offer low-cost ad programs that can get your content in front of more viewers.
Purchase Business Insurance
This is a critical step that will help protect your financial and intellectual investment from unforeseen circumstances such as theft, customer lawsuit or property damage. While a general liability policy is sufficient for most small businesses, those who hire employees will also need to purchase unemployment compensation and worker’s compensation insurance. Professional liability insurance protects you if something goes wrong when you’re providing professional services.
Explore Helpful Resources
In addition to your local chamber of commerce, your community and state likely offer a wealth of information and resources for new business owners. Online government agencies and nonprofit organizations also provide assistance. Some possibilities to explore include:
SCORE, a network of more than 10,000 volunteer business owners in 300 chapters across the nation who provide mentoring support to new entrepreneurs. The organization was founded in 1964 and is supported by the U.S. Small Business Administration. On the SCORE website, you can enter your zip code to get paired with a mentor in your area or find your local chapter. The organization also offers live webinars, online courses and local lectures and seminars along with a library of resources.
A list maintained by the IRS of recommended reading for small businesses that provides valuable information about taxation and other regulations.
A comprehensive business guide designed by the SBA to help you plan, launch, manage and grow your business, including a 10-step guide to getting off the ground.
Funding is one of the biggest challenges people starting a business face. If you’re seeking capital for your venture, consider applying for a flexible line of credit from an online small business lender.
I hope this will help any entrepreneurs who want to seriously set up a business with the right resources following this above 10 steps to success.
Wishing you much success in all that you set out to do in the near future.